Microsoft Kin flop: blame the pricing

Plenty of websites have been hammering Microsoft about the failure of the Kin “texter” phone. Some people refer to it as a “new chapter in the long history of Failure”, and point to the low number of units sold: reportedly between 500 and 10,000 (that’s quite a range!). Of course, the party wouldn’t be complete with Microsoft employee dissatisfaction over the issue: “We had a huge launch party on campus and I bet that party cost more than the amount of revenues we took in on the product. As an employee, I am embarrassed. As a shareholder, I am pissed.” (anonymous MS employee, via daring fireball ). What happened? To make a long story short: the pricing of the phone was lame.

If you are not familiar with Kin, the concept was to build a fancy “texter” phone that would target a cheaper segment than traditional smartphones like the iPhone or the Droid.

In reality, when the Kin did hit, its voice and data plans were priced exactly like smartphones – ouch. Why such a bizarre move? Because the Microsoft Kin can consume as much (or more) data than a smartphone would. For better or worse, Kin syncs all the data to a remote server and makes it available via a web interface which can be viewed from any computer – that’s great. The web interface looks very good, so let’s hope that it survives the fiasco and pops on Windows Phone 7.

Kin data as seen via the web admin interface

However, Kin effectively removed the reason why texters were cheap to start with: texters only send… text across the carrier’s network. For carriers, text messages (SMS) are one of the greatest cash generator ever. In Europe, it has been determined that gross margins for SMS can be around 95%. Photos are hundreds or thousands of times more expensive to handle for the network.

In the end, I suspect that Verizon has decided that it had to price the plan in a way that makes economic sense for them. The issue is that consumers didn’t bite. Even with a deep discount, the overall savings provided by Kin over a Droid Incredible (over 2-yr) was around $50-$150, for a total cost of ownership of about $1800. It just does not make sense, and we warned about it from day one.

The industry will learn something about this commercial failure: customers don’t want to buy a watered-down smartphone for “almost the price of a smartphone”, even for the sake of “ease of use”. That means that current smartphones are probably easy enough to use. Customers would rather buy a “real” smartphone that has apps and all, or simply stay with the really dumb, but very cheap, phones. There’s no room in the middle.

I think that pricing was *the* factor in the Kin debacle, and without having insider information, it’s hard to tell how control much Microsoft actually had over this (probably none, although they should have see it coming). It’s sad, because the Kin has cool technical and design aspects.

Now, the Kin team has been merged with the Windows Phone 7 team, and I can only hope that the best elements of Kin will make it into WP7 before the launch.